With doubts of evergreening of loans and fictitious loan accounts looming over certain portfolios covered under credit guarantee schemes, a forensic audit initiated by National Credit Guarantee Trustee Company (NCGTC) is currently ongoing at Bandhan Bank. This covers ₹23,300 crore of loans lent under credit guarantee schemes.

Among other scrutiny processes, documents accessed by businessline, reveal that the auditor is required to “perform data analytics on the portfolio to identify window-dressing or evergreening of loans”.

Documents also clarify that the scrutiny will not be limited only to accounts classified as non-performing assets (NPA), but also the total loan portfolio under credit guarantee schemes. These include ₹20,800 crore of loans covered under Credit Guarantee Fund for Micro Units (CGMFU) and ₹2,500 crore of loans covered under government’s Emergency Credit Line Guarantee Scheme (ECLGS).

Bandhan Bank has taken insurance of ₹20,800 crore under CGFMU and disbursed about ₹ 1,950 crore under ECLGS in FY20-21. Out of this, nearly 85 per cent has been repaid by the customers and the remaining portfolio carries 88 per cent provisioning. The bank has claimed and received ₹917 crore in December 2022 and made an additional claim of ₹1,296 crore in Q2 FY24.

Understanding the audit

Normally, such reviews are par for course when any insurance and loss claim settlement process is underway. However, in Bandhan Bank’s case, what’s noteworthy is that the audit is not limited to the NPA accounts for which guarantee claim is initiated. According to documents pertaining to the audit, one of the purposes of audit is to identify trends and patterns and to assess potential inflation in the portfolio by way of fictitious customers.  

With premiums ranging from 1–1.25 per cent per annum under the CGFMU scheme, the trigger for initiating the forensic audit by NCGTC, according to sources, could be the sudden surge in the claim payout ratio.

“In Bandhan’s case, the overall claimable amount may be substantially higher than the general expected loss on the portfolio which is usually around three per cent,” said another person familiar with the matter.

This is seen as the reason why the entire portfolio under the audit purview.

Loans under CGFMU account for 35 per cent of the bank’s MFI loan book or 18 per cent of its total loans.

Under CGFMU, the maximum permissible claim to 15 per cent of the crystallised value of the loans of the portfolio, while with ECLGS, there is no limit for claimable amounts, and it doesn’t involve premium payment.

According to sources, Bandhan Bank has seen a change in SSM or senior supervisory manager. An officer from RBI’s Mumbai office has been posted to Bandhan replacing the earlier SSM.

According to Bandhan Bank, “NCGTC had done an initial sample audit after the 2nd claim. The agency made certain observations in the sample audit that are inadequate and not backed by factual data/process and we clarified our stand on the same. However, to validate our stand, NCGTC decided to proceed with the detailed audit of the claim. The bank has been fully cooperating with the audit agency. The bank is fully confident that we will recover the money from CGFMU. We continue our recovery process from these accounts and have already recovered more than 20 per cent of the ₹917 crore received last year from the NCGTC”.

What’s the contention

– NCGTC is currently performing forensic audit on Bandhan Bank’s loans worth ₹23,300 crore

– Auditor expected to analyse the portfolio to identify window-dressing or evergreening of loans

– Audit scope also includes assessing potential inflation in the portfolio by way of fictitious customers

– A new SSM has been posted to Bandhan Bank by RBI

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